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Emerging Bonds Halt Slide as Indonesia Gains; Russia Debt Drops

April 28 (Bloomberg) -- Indonesian and Philippine dollar bonds rose, paring yesterday’s biggest loss in a month, on speculation Asian debt is still attractive given the region is leading an economic recovery.

The gains helped halt the biggest slump in emerging-market bonds in a year that was triggered by credit rating downgrades of Greece and Portugal by Standard & Poor’s on concern the two countries will struggle to rein in budget deficits. Germany is delaying approval of a 45 billion euro ($59.3 billion) emergency-aid package for Greece.

“Greece will cause some contagion but investors should look at the fundamentals instead of selling everything in emerging markets,” said Paul Chan, chief investment officer at Invesco Asia Ltd. in Hong Kong. “In a beauty contest, Asia is very attractive versus developed markets in the debt-to-GDP area. The question for bond investors is valuation.”

The extra yield investors demand to own developing nations’ sovereign bonds over U.S. Treasuries declined four basis points to 2.60 percentage points as of 1:45 p.m. in London, according to JPMorgan Chase & Co.’s EMBI+ Index. The spread widened 21 basis points yesterday, the most since April 20, 2009. The

Russian bonds fell, extending the worst slump since 2008, on speculation Europe’s debt crisis will worsen. Ukraine and Bulgarian debt declined.

Dollar Bonds

Gains in Asian currencies this year, led by the Malaysian ringgit, India’s rupee, and the Indonesian rupiah, are helping boost returns on emerging-market debt, drawing investors from overseas. The spread on JPMorgan’s bond index has narrowed from a 2010 high of 3.27 percentage points in February and compares with 8.65 points at the height of the financial crisis in 2008.

The Philippines’ 6.5 percent 2020 bonds rose 6 cents on the dollar to 109.25, pushing the yield down one basis point to 5.27 percent, according to prices from Royal Bank of Scotland Group Plc. Indonesia’s 2020 5.875 percent notes rose 13 cents to 104.25, with the yield falling two basis points to 5.31 percent.

Yields on both the securities climbed nine and 11 basis points yesterday, respectively, the most since March 22, when German Chancellor Angela Merkel told investors they shouldn’t expect the European Union to agree to assist Greece.

Chan at the unit of Atlanta-based Invesco, which manages $420 billion, is holding off adding to Philippine and Indonesian dollar bonds to wait for higher yields.

Russian bonds fell, sending the extra yield investors demand to own the country’s debt over Treasuries five basis points higher to 1.91 percentage points. The increase extended yesterday’s 30 basis points jump, the most since November 2008. The spreads on Ukraine and Bulgaria’s debt surged more than 30 basis points as the cost to protect Greece, Portugal and U.K. debt from default increased.

Trichet to Berlin

European Central Bank President Jean-Claude Trichet is on a diplomatic mission to Berlin as Germany’s reluctance to bail out Greece helps fan a fiscal crisis. Standard & Poor’s yesterday cut Greece’s rating by three levels to a junk, saying it faces financing risk as economic growth weakens, and lowered Portugal by two steps.

“The Greece story finally reached center-stage, so expect the market to trade down a few days,” said Cornel Bruhin, who oversees $280 million as an emerging-markets fund manager at Clariden Leu AG in Zurich. “This will create buying opportunities. But it’s too early to jump in as I don’t expect a solution over this weekend.”

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net; Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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